How do I get users into 2 separate groups (which they choose when they register)?

Usergroups or GroupJive groups? For usergroups you can use CB Auto Actions with a Usergroup action on the after registration trigger then check your field in a condition and add them to the usergroup. For GroupJive groups you can use CB Auto Actions with a GroupJive action or use the GJ Auto integration.

How do I put the CBSearch on the front page of the site and allow group 1 users to search for group 2 users with some predefined criteria (e.g. name, username, group name, ect...)?

CB Search? CB Userlist? Create a userlist within Userlist Management then add a Joomla menu link to it. Please review your CB documentation in Advanced downloads section for further details.

Thanks. I guess Usergroups. I want (for now) two main usergroups for the site and I think it's ok if they both share the same GJ stuff. How do I invoke using CB Auto Actions to accomplish the task?

Please see the below tutorial.

www.joomlapolis.com/support/tutorials/107-use-cases/18237-assigning-usergroup-based-on-cb-field-value

Where do I find the CB documentation (is it the PDF that was shipped with it?).

It's in the Advanced downloads section. No, the PDF included is just the quick install guide.

Can't find the Userlist creation area. I found where to create a new user and new user group however. Where is it found at?

Components > Community Builder > Userlist Management

It doesn't create new usergroups. It simply adds your existing usergroups to the user. If on J1.5 you can't create new usergroups. If on J2.5 navigate to Users > Groups to create new usergroups.

You're not going to see anything different on the registration page. You need to create a field in Field Management so a user can select a usergroup. You then check against that field in conditions. The tutorial explains this except for creation of the field it self.